The rupee weakened against the dollar on Thursday, with USD/INR trading around 95.60–95.61 as rising US Treasury yields supported the greenback. In Asian hours, the 10-year US yield was up 1.8% at about 4.71%, its highest level in 18 months, while the Dollar Index (DXY) was 0.12% higher near 100.93 after a sharp fall a day earlier following the Federal Reserve’s policy decision. The Fed kept rates unchanged for a fifth consecutive meeting, holding the target range at 3.50%–3.75%, as markets weighed renewed inflation concerns linked to firmer oil prices and ongoing geopolitical strain.
Oil traded lower early Thursday even as US–Iran hostilities continued; Iranian media reported strikes on Abadan and Qeshm Island. The MCX Crude Oil contract expiring on 19 August was down 1.1% at roughly Rs. 8,030, while supply risks persisted with constraints in the Strait of Hormuz and Bab el-Mandeb. In technical terms, USD/INR remained below its 20-day EMA at 95.86, with RSI at 47.76; resistance sits at 95.86 and then 97.10, while support is seen at 95.00.
USD/INR and Options Trading Strategies
We suggest that derivative traders look to buy USD/INR call options on dips toward the key 95.00 support level. Since the pair is consolidating just below its 20-day exponential moving average of 95.86, option implied volatility remains relatively low, making premium-buying strategies cheaper to enter. A clean breakout above 95.86 could quickly push the pair toward the recent high of 97.10.
Crude Oil, Geopolitical Risks and Fixed Income Positioning
With India importing over 85% of its crude oil, the current military escalation in the Middle East poses a direct threat to the rupee. Historically, when oil prices spike due to geopolitical tension, India’s trade deficit widens rapidly, putting heavy downward pressure on the domestic currency. We recommend buying out-of-the-money MCX crude oil call options to hedge against sudden supply shocks in the Strait of Hormuz.
We also believe traders should position for higher US interest rates by shorting bond futures or entering payer swaps. The 10-year US Treasury yield rising to 4.71% mimics the late 2023 surge which triggered massive capital outflows from emerging market assets. As long as US yields remain near these multi-month highs, any recovery in the rupee will likely be short-lived.
